Tuesday, 8 January 2013

Benefits cap fantasy politics

Hard to ignore the media today making such a song and dance about the vote on capping benefits rises at 1%. The bizarre PR campaign from the Coalition Government is to say that this is only fair as this is what public sector workers have to live with. No mention of the 80% of private sector workers who contribute their taxes to paying for everyone on benefits AND in the public sector yet have seen pay falls in the past few years.

Also, capping benefits rises is a little like putting a plaster on a arterial wound. The Government is spending £300 million a day of money it does not have and this will be but a small part of it. After all, it is still a rise although it is presented as a real terms cut (I note how the BBC has jumped on that straight away, given its anxiety about the cuts which one day are going to it).

Yet the shrill tone from the Labour benches about hitting the poorest hardest I think is very bad politics for once from Labour. It's fine to be anti-everything, but it is not credible to try to say you will manage the economy sensibly whilst not having any plans at all to reduce the hideous spending levels back down to 40% odd of economic activity that the UK economy could actually sustain.

17 comments:

Blue Eyes
said...

When the coalition does something obviously sensible and popular Labour are stuck between agreeing it and risking being asked "why didn't you do this when you were in" or disagreeing with it. Their only distinctive policy since 2010 has been to say they don't agree with anything.

Hopefully the more they call for higher public spending in the name of "jobs" and "growth" the more ridiculous they will look to the all-important swing voter.

regardless of al-beeb, for those in low paid work these measures will be a kick in the nuts. not sure what message the coalition is sending to aspirational blue collar voters. i must say ive found this shirkers vs strivers particularly irritating

Tax credits was always set up as a bear trap by Brown. Whatever, well, history makes of him, the chap used consumate skill and low guile in subverting the natural order of politics. Give the punters a benefit which appears to be through the largesse of the state, rather than, you know - raising the threshold.

When I worked at HMRC it was absolutely shocking how people were being given cash with one hand and had it taken away with the other. It's pure socialism what with the army of tax advisors that need to be taken on to deal with every (complex) case individually. Ho hum.

So, I guess giving Osborne some credit for manipulating this debate so that there is a divergence. But he really does have to man up to have any hope of using the Treasury as Brown did - as a battering ram to hammer the opposition.

E-K I agre with you, but let me play devils advocate and say - they are right but they don't know why.. having never heard of a private central banking cartel that produces fiat money out of thin air :-)

Benefits are meant to afford a minimum standard of living. Raising them by 1% a year for three years, when inflation on necessities is probably over 5%, will drop them a long way below that standard.

Now maybe that standard was set too high. But that's not what Osborne and Shapps are arguing. They're arguing that it's "fair" that a minimum standard set by Parliament should be reduced because other, better-off (even if not by much, in many cases) people are tightening their belts.

A little remembered fact is that the first UK Green Paper on Tax Credits was written by (wait for it) Keith Joseph and Anthony Barber:

Proposals for a tax credit system - Cmnd 5116, 1972

Yes, the Heath govt first considered Tax Credits.

They decided not to go with it in the end, leaving in place the stop-gap Family Income Supplement (FIS) instead, which had a withdrawal rate in some circumstances of £1.20 for every extra £1 earned - a real earnings trap which Tax Credits eventually fixed (though it still had corner cases with 95% withdrawal rate, but the mainstream withdrawal rate was 70%).

Brown's Tax Credits were fairly closely modelled on the U.S. Earned Income Tax Credit (EITC), which were introduced in 1975. Yes, this so-called socialism was in place in the U.S before the UK.

So if you know your history, you'll see that they weren't a novel idea dreamt up by Brown - sadly not a history the british press likes to read up on!

If you want to read up on the history, HOUSE OF COMMONS LIBRARY Research Papers 98/46 and 99/3 are good places to start.

What have you done to this site ? Have you tried viewing on an iPad / iphone ? Its bad enough with ftalphaville requiring you to login but atleast you can view resize the text.@CU if your page hits are down and you can view device / os type it is almost certainly due to the crap view on idevices and blackberries.I'll come back a few more times, but gotta admit haven't managed to completly read a post since the change. I hope this is not 'nothing to see here, move along' Shame.

I don't think anyone with more than a quarter of a brain thinks that Brown invented tax credits from scratch. Conservative thinkers also talked about "negative income tax" as well. The problem was in the way Brown introduced tax credits. He set up a system so convoluted that a huge proportion of the *working* population are in receipt of tax credits while also paying income tax and NI on their actual earned income. It's total madness.

This 1% cap is not a solution in any way, but it is a statement of intent by the government. Imagine the yawns and lack of legislative progress if the coalition had put a bill through offering root-and-branch reform of the tax credits system.

No, this working-age benefits cap is a staging post to test public appetite for genuine welfare reform. And from media reaction it looks like there will be an opportunity to go quite a bit further.

One thing which I find interesting is that there is almost universal support for a sensible welfare system and almost universal agreement that the current system rewards the wrong kind of behaviour.

This has been true for many years and Blair's lasting legacy could have been to come up with something good. Three cheers to the coalition.

BE, as the press so infrequently refers to the predecessor systems of 1971 Family Income Supplement or the 1988 Family Credit, journalists must have less that quarter of a brain! Family Credit in particular had a lot of similarities with the 1999 Working Families Tax Credit.

I don't understand how you avoid paying a benefit while simultaneously also paying income tax and NI on actual actual earned income in working families assistance systems like thus. The new Universal Credit will do the just the same, as does the U.S. Earned Income Tax Credit. The only alternative would be to try to adjust on an individual basis tax codes and tax starting points to reduce tax according to family circumstances. Not only would employers utterly hate this (having to process all the code changes), but it would not be very effective unless implemented alongside a "negative income tax".

As an aside, "Tax Credit" is a misnomer for the 2003 version of Brown's Tax Credits. As I see it, the distinguishing feature of a Tax Credit is that is done through the payroll, so it has the apparent effect of reducing tax. 1999 Tax Credits did that - do you remember the STOP and START notices employers were sent to implement it? Employers hated them, and often implemented them wrongly. So in the 2003 version of Tax Credits payment through the payroll was dropped.

On a broader political front I was amazed by how tetchy IDS seemed in the debate.

Reading the detail of Universal Credit + associated changes makes it apparent how complex this is - makes Brown's Tax Credits look like a simple system, and implementing it looks like it will be a nightmare even with today's better computer systems. I'd be amazed if it works well enough not to be a govt embarrassment. I wonder if IDS knows implementing it is going badly, likely needing a further delay, and this is making him especially tetchy.

"Much is made of the purported lack of faith that George Osborne has in Mr Duncan Smith ... The truth is that it is hard to find any senior minister or mandarin who does not name welfare reform – along with a winter hospital crisis – as one of the biggest bombs ticking away beneath the government."

and

"The blueprint was drawn up by those on the socially conservative wing of the party. They are people of faith and good intentions but not always sticklers for analytical rigour."

The tories ought to be looking for an early way to bail out of implementing this if the signs are truly bad.

CU recently the site changed -apparently by itself - into 'mobile' format on my iPad. Perhaps this is what Anon is talking about. It does look ok like this, to me anyway. Anon, you can change it back to the ordinary 'web' version via a link at the bottom of the page.